The mining industry is still recalibrating to a set of strong headwinds after the commodity boom peaked in 2011. From volatile market conditions to resource scarcity and environmental mandates, the challenges facing the mining industry has forced miners to re-think the way they operate. In this article, we look at some of the major dilemmas the industry is grappling with.
1. Market Volatility And Weak Global Demand
The global commodities boom in the early 2000s was driven primarily by the rapid expansion of the Chinese economy. However, as China’s economy gradually shifted away from resource-intensive manufacturing, there has been a slowdown in demand growth and consequent fall in commodity prices and mining profits. The surge in demand for metals and minerals during the century’s first decade encouraged massive capital investment to boost production volumes. A significant proportion of projects started during the boom years did not reach production capability until after prices collapsed. Changing market conditions and sluggish demand growth has resulted in a steep decline in profits in the mining industry.
2. Resource Scarcity and Quality
One of the major challenges facing the mining industry today is that there are fewer high-quality ore deposits left to develop. New deposits exist mostly in remote and difficult-to-access areas. Consequently, the costs, lead times and risks associated with developing and operating new mines are increasing. Many existing mines are maturing, resulting in the extraction of lower ore grades, and longer haul distances from the mine face. As ore grades decline, production costs for each ounce or ton go up significantly. According to a report by the World Economic Forum in 2017, the average cost of producing copper has risen by >300% in the last 15 years, while grade has dropped by 30%.
3. Talent Shortage
The shortage of technically skilled labor – including project designers, mining geologists and engineers, is one of the most pressing concerns in the mining industry. A high percentage of the industry’s workforce is ageing. While experienced workers may have deep industry knowledge, they are less comfortable adapting to digital innovations and collaborative work. Millennials, on the other hand, tend to have a strong understanding of digital technologies, but may have a thin knowledge of mechanical-physical operations, and be less compliant with traditional corporate hierarchies. A shortage of skilled workers to take on complex mining jobs puts pressure on existing staff to do more with less, reducing employee productivity and increasing costs of retaining existing talent.
4. Resource Nationalism and Regulations
Resource nationalism refers to the policies and regulations imposed by a country’s government to maximize the benefits gained from the natural resources of a country – sometimes to the detriment of private companies. In the mining industry, this can range from rising taxes, permitting fees, export duties, etc. Although this is not a new phenomenon facing the mining industry, it has been increasing due to the economic slowdown in the recent years.
Mining companies are also subject to stricter and more costly regulatory requirements in all areas of operations. As communities and social groups continue to raise concerns about the environmental impact of extraction and processing operations, winning a social license to operate further escalates costs for companies.
With profits down due to the challenges presented above, miners must seize the opportunities offered by digital technologies to raise productivity and cut costs. Although there are no easy solutions for the challenges facing the mining industry, digital transformation will play a key role in solving them.
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